Spanish and Italian Bonds Ease but European Stocks Lose Steam

By Andrea Tryphonides

Spanish and Italian bond yields eased further Monday, extending last week’s rally as Spain’s prime minister indicated the country may ask for aid from the euro zone’s bailout fund.

Last week, Spanish Prime Minister Mariano Rajoy suggested that the debt-laden country may ask for European Financial Stability Facility aid. This followed comments from European Central Bank President Mario Draghi who said any future purchases by the central bank to tackle the euro zone’s sovereign-debt crisis would focus on short-dated debt, resulting in a sharp fall in shorter-dated Spanish and Italian bond yields and a rise in the euro against the dollar.

In addition, ECB officials have said the bank could intervene and buy the bonds of struggling euro-zone countries without unanimous approval, raising hopes that a bond-buying program is still a possibility.

But Spanish Finance Minister Luis De Guindos said over the weekend there is no hurry to seek a bailout, with Spain having met 70% of its 2012 borrowing needs.

“Mr. Draghi went as far as he could, in our view, to indicate in no uncertain terms that ECB support would be available as soon as the potential recipients–presumably Spain and Italy–accept to trigger European support…True, many details have yet to be fleshed out and volatility is likely on account of Greece, the German constitutional court ruling and the Dutch election, but Draghi in our view is on his way to deliver on his promises,” said Barclays in a note.

European stocks, however, ticked between small losses and gains Monday, despite calls from spreadbettors for a markedly higher start overall. The benchmark Stoxx 600 index fell 0.2% to 264.97 in low volumes, having run out of steam following strong gains on Friday.

Stocks finished sharply higher Friday on a more optimistic tone regarding the euro zone and after better-than-expected U.S. nonfarm payrolls data. The blue-chip euro-zone Euro Stoxx 50 index closed up 4.8% at a four-month high, while the FTSE 100 gained 2.2%, closing at a three-month high.

At 0815 GMT Monday, the FTSE 100 was down 0.2% at 5777.26 and Germany’s DAX was up 0.1% at 6871.81. France’s CAC-40 fell 0.3% to 3362.97.

Outside of the core of Europe, Spain’s IBEX 35 was up 0.2% at 6772.40 and Italy’s FTSE Mib fell 0.2% to 14,103.93. Greece’s ASE Composite was up 0.8% at 602.95. Greece concluded a two-week round of talks with auditors last week, who described the country’s progress on austerity measures as positive.

Meanwhile, the euro slipped from its strong gains against the dollar. At 0810 GMT, the euro was at $1.2354, from $1.2385 late Friday in New York. Against the yen, the dollar was at ¥78.36 from ¥78.48.